Step One: Keep the Proper Credit Card Balance.

Did you know that your credit card balances on each credit card should always be lower than 30 percent of the limit? For instance, if you have a $10,000 spending limit on your Visa, keep your Visa credit card balance below $3,000 at all times, even if you pay your bill in full each month.

The debt you carry on a credit card in proportion to the balance is called a “utilization rate,” and credit bureaus respond more favorably to people with low utilization rates. The lower the utilization rate, the better your score.

You must keep your credit card balance below 30 percent month-round. Maintaining a higher balance, but paying the bill below 30 percent at month’s end is not a sufficient strategy. Credit card companies want to know that you consistently live within your means, so you must always shoot for the 30 percent target.

What about your credit card balance on that card with no preset limit, such as an American Express card? Cards with no present spending limit usually work like this: The credit bureaus will take the highest balance you have ever had on your credit card and use this as your default balance. Let’s say that your highest balance was $8000. Credit bureaus would act as if $8000 were your limit, meaning your balance should never be more than $2400.

If your utilization rate is too high, you should do one or more of the following:

1. Transfer fund among your credit cards so that each card has a 30 percent balance or less; and /or

2. Pay off any debts that put your balance above 30 percent of the limit; and/or

3. Ask your credit card company to increase your limit so that your balance is less than 30 percent; and/or

4. Open another credit card account and transfer balances accordingly (but only after you learn about the right number of credit cards to carry).

Keeping the right credit card balance is one of the most important things you can do to increase your credit score, but keep reading the other steps that explain how to build credit.

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